Title:
Capital Structure and Firm Performance of Listed Non-Financial Companies on the Nigerian Stock Exchange

Authors:
Fakunle Isaiah Omotayo, OmoleI lesanmi Isaac, Adewumi Ayodeji Davidson, South Africa

Abstract:

The study explores the relationship between capital structure and the financial performance of listed non-financial companies on the Nigerian Stock Exchange (NSE). The research design adopted is ex-post-facto due to the nature of data envelopment analysis, a mathematical programming technique used to evaluate decision-making units. The population consists of all 105 non-financial companies listed on the NSE, and a purposive sample of 60 such companies is chosen for the study. Data is collected from the annual reports of these companies for the period 2009 to 2022, focusing on key financial metrics such as debt to equity ratio (DER), leverage ratio (LEV), return on assets (ROA). The fixed effect regression analysis is employed to determine the significance of these variables and their influence on ROA.The findings indicate a positive association between Debt to Equity ratio and ROA, implying that a higher ratio is linked to improved firm performance. However, the non-significant p-value suggests that this relationship lacks statistical significance at the 5% level. Conversely, Leverage exhibits a negative influence on ROA, potentially due to increased interest expenses and financial constraints. However, this negative relationship also lacks statistical significance. In conclusion, the results highlight that while capital structure does exhibit certain trends in its impact on ROA, the statistical significance is absent. The positive relationship between Debt to Equity ratio and ROA suggests potential benefits in terms of access to capital, lower financing costs, and financial leverage. However, the lack of statistical significance underscores the need for caution when making concrete conclusions. The negative relationship between Leverage and ROA, while not statistically significant, raises concerns about increased financial risk. Overall, the study's outcome suggests that capital structure has no significant effect on the financial performance of companies listed on the Nigerian Stock Exchange. Recommendations stemming from the study include the optimization of capital structure, qualitative analysis to understand the reasons behind capital structure decisions, prudent risk management practices, diversification of funding sources, and regular performance assessments to align capital structure decisions with strategic objectives.

DOI: https://doi.org/10.51505/IJEBMR.2024.8215